If you’re looking to attract and incentivize top talent for your startup or small businesses, one of the most effective ways to do so is to offer stock options or stock bonus plans for your key employees. Research shows that stock options can be a win-win for both businesses and their employees. Companies that offer employee stock option plans (ESOPs) tend to grow 2.3 to 2.4 percent faster than those who don’t—and employees who participate in ESOPs tend to retire with triple the assets of those without them.
How Employee Stock Options Work
Stock option plans can obviously vary in scope and size, but let’s look at the gist of how most of them work:
• The company grants the employee a certain number of shares in the company, or gives the employee the option to buy them at a predetermined price (typically market value at the time of the grant, or sometimes at a discounted rate). Shares can be made available incrementally based on benchmarks such as length of time with the company, or achievement of stated goals. Stock options can also be incorporated into employee retirement plans.
• The employee exercises his option to obtain his shares within a certain period of time according to the terms of the plan. If company stocks have increased in value since the grant date, the employee stands to build immediate equity by purchasing the stocks below market value.
• The employee has the right either to hold onto the stocks until retirement or to sell them at an opportune time.
Why Stock Options Work So Well
Offering employee stock options can be very advantageous to businesses who need to attract talented employees but don’t yet have the budget to pay high salaries. It also motivates employees to give their best efforts since they now have a direct interest in the company’s success.
Legal Ramifications
While ESOPs give small businesses and startups the ability to grow in a competitive market, they must also comply with complex federal and state security laws.
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You should never implement an employee stock option plan without the assistance of an experienced Dallas business law attorney. To learn more, call Armstrong The Law Firm, P.C., today at 972-424-L-A-W-S (5297).
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